Commercial Due Diligence (CDD)
Commercial Due Diligence is all about understanding customers and markets. Therefore commercial due diligence is the process that investigates the target’s future abilities to sustain or increase its sales in the changing market environment in which the company operates. It other words CDD reduces risk in acquisition by terminating the gap in the investor’s knowledge about the target company and its business environment to make the best deal in acquisition.
The aim of CDD is to assess three areas that will allow understanding how the target company will perform in the future as standalone business or under integration. These 3 areas include:
- Competitive position
Commercial due diligence can be used not only in investigations of acquisition opportunities. CDD can be used in Joint Ventures and in recovery situation, which is true and needed in the economic situation in Ukraine. Commercial due diligence can be useful in any business situation that requires understanding of market trends, product attractiveness, ability to compete and management’s capability to effectively deal a business in the future.
Why Ordering Commercial Due Diligence?
It is crucial to use all market opportunities and effectively position your company in the rivalry environment to maintain you competitive advantage and therefore keeping or even increasing your profit margins. In order to understand whether the target company is using its full potential or it has some serious issues threatening its future business performance, you need to have complete understanding of the technologies being used, market trends, power of customers and suppliers, abilities of the management to sustain company’s healthy performance in the changing market environment, influence of legislation and other important factors.
There is market uncertainty, technology changes, increasing competition, bold expectations about profitability, aggressive projections based on launching new products, management might be not capable of adapting, changing and generally delivering the expected business results, etc., – you need to know about the weak points and external threads of the target company to make appropriate proactive actions.
Ideally commercial due diligence is done as a mini strategy review performed not only to determine risks that have to be provided for before the deal, but also to offer a comprehensive plan of how the acquired target will be sustaining its competitive advantage in the future, making the expected sales.
Generally CDD is done when there is a clear run for the target to make the following decisions:
- To buy or not to buy
- To negotiate a lower price
- To have understanding (and ideally a blueprint) of what to do after the transaction to maximize the value of the acquisition
After the first meeting we prepare the scope of work based on the client’s requirements. Then we agree terms, scope of work, timelines, reporting standards and fees.
When starting a project, we undertake brief desktop research in order to assess the availability of information on the market, the dynamics of the sector and the growth expectations. We also coordinate time for briefings with management and other teams who might also work on the project (at the same time financial or legal due diligence can be undertaken).
After preparations and setting the meetings schedule we discuss the business strategy, perceptions of market size and structure, customers as who they and what they do, future expectations about the volumes of sales and company developments, etc. Then we thoroughly analyze the projections as to sales, profit margins, customer relations, management competences, etc. We also discuss with the management how to approach in the best manner the interviews with customers and suppliers as we need to assess the accuracy of the published information about the company, the markets and competition.
We use flexible approach to deal with new essential information that might appear as we proceed with the project. This approach allows our clients to receive not only the assessment describe in the scope of work but also assessment and recommendations regarding the newly received information that was discovered within the process of the due diligence.
Our investigation is based on the mix of thorough desk research and interviews with suppliers, customers and in some cases even competitors. We examine the received information in order to make sure we gained collective understanding of the target market and position of the company in this market. Then we undertake forecast reviews making assessments of all assumptions under the projections, estimate the market opportunities and reveal commercial risks.
We summarize all the findings of our research and business investigation together with our assessment in a clear and concise report which is presented to our client at the end of the project. As the commercial due diligence focuses more on the aftermath rather than just provides a snapshot of the current issues, we deliver recommendations as to the further actions for the company to achieve its full potential.
We are one of the first to offer commercial due diligence consulting services in Ukraine. Our consultants have strong and confident commercial due diligence expertise. We understand that investors/acquires do not pay advisers for information alone. What they really want are clear, well-founded opinions and an assessment of opportunities as well as risks. Suomin Consulting combines the professionalism and the level of service you will surely appreciate.
For any enquiries or questions regarding our commercial due diligence services, please, fill the form below and we will contact you right away.
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